Is Your Pension Quietly De-Risking You Into a Worse Retirement?

By Rob Bell, Chartered Financial Planner, Finova Money

Many UK pensions automatically move your money out of growth assets (such as shares or equities) and into more defensive assets (like bonds, gilts and cash) as you approach your retirement date. That design made sense in a world where almost everyone bought an annuity on the day they stopped working. If you plan to stay invested and draw an income instead, an over-cautious default can quietly cost you growth you will still need for a retirement that might last thirty years.

Here is the uncomfortable part. Most people this affects have no idea it is happening. There is no letter, no phone call, no moment where someone asks whether the plan still fits your life. The pot just gets steadily more cautious in the background, on a schedule set years ago by someone who never met you.

What does pension de-risking actually mean?

Pension de-risking, often called "lifestyling," is an automatic process that gradually shifts your pension out of higher-growth investments and into supposedly safer assets as you near a set retirement age.

The path it follows has a name: the glidepath. Picture a plane coming in to land. Early on you are cruising at altitude, mostly invested in shares, aiming for growth. Then, usually somewhere between five and fifteen years before your target retirement date, the descent begins. The share allocation comes down, the bond and cash allocation goes up, and by the time you reach the target date the pot is meant to be sitting quietly on the runway.

Most workplace pensions do this by default. You did not choose it, and you were probably never told the descent had started. For a lot of savers, the first they hear the word "lifestyling" is when someone like me points at their fund factsheet and explains what the small print has been doing.

Why was pension lifestyling invented?

Lifestyling was invented to solve a real problem in the world that existed before 2015: the annuity world.

For decades, the standard path was straightforward. You saved into a pension, and on the day you retired you handed the pot to an insurer in exchange for a guaranteed income for life – an annuity. Because you were going to convert the whole pot into income on one specific day, a stock market fall just before that day was genuinely dangerous. If shares dropped 20% the month before you bought your annuity, you locked in a permanently smaller income.

So the industry designed lifestyling to protect against exactly that. Move out of more volatile growth assets as the date approaches, hold steadier assets, and reduce the chance of a nasty surprise right before the big irreversible purchase. For someone buying an annuity, that logic held up well.

The trouble is that the logic was welded to an assumption: that you would buy an annuity. And in 2015, that assumption stopped being true for most people.

What changed with pension freedoms in 2015?

Pension freedoms, introduced in April 2015, gave savers the right to keep their pension invested and draw an income from it flexibly, rather than being nudged toward buying an annuity. Since then, drawdown has become the more common way people access their pots.

This is a bigger shift than it sounds. If you use drawdown, you do not cash everything in on day one. You leave the money invested and take a more flexible income from it over time, often for twenty or thirty years. Your retirement date is no longer a cliff edge where the whole pot gets converted. It is the start of a long second phase where the pot still needs to work and grow.

Here is where the old design quietly turns against you. Lifestyling was built to get your money safely off the plane and onto the runway by retirement day. But if you are using drawdown, you are not landing at all. You are staying in the air for decades. A glidepath that moves you heavily into bonds and cash at 60 has solved a problem you no longer have, and created a new one you did not ask for.

What is the hidden cost of de-risking a pension too soon?

The hidden cost of de-risking too soon is lost growth on the largest pot you will ever hold, at the moment there is least time to recover it.

A simple illustration shows the shape of it. Take £100,000 ten years before retirement and follow it down two glidepaths. A gentle path that keeps a meaningful slice in growth assets to the end might reach roughly £162,000. A steep path that de-risks early and hard, moving out of growth assets well before the date, reaches around £146,000. Using illustrative returns of about 6.5% a year for growth assets and 2% for defensive assets, applied to the mix each path holds along the way, that is a gap of about £16,000, on one pot in a single decade: the growth quietly handed back by de-risking sooner and harder than the plan required. These figures illustrate the mechanism rather than forecast it. They ignore charges, inflation and tax, and real returns vary year to year and can be negative.

The reason it costs so much is the one thing worth remembering from this whole article. Compounding does its heaviest lifting on the biggest balance, and your biggest balance is usually the one you are holding in the years right before and after you stop working. Take the growth engine out of the portfolio at exactly that point, and you switch off compounding when it matters most.

You can try this with your own pot value using the tool below.

This is an illustration of a general principle, not financial advice or a forecast.

Each path's return is based on the mix of growth and defensive assets it holds each year, using illustrative rates of 6.5% for growth assets and 2% for defensive assets, before charges, inflation and tax, and with no further contributions or income taken. The figures used are illustrative and are not a forecast of the returns of any particular fund or strategy.

Once you are drawing an income in retirement, withdrawals reduce the pot further. The value of investments can fall as well as rise, so you could get back less than you invest. These figures also show only one side of a trade-off: holding more in growth assets brings the risk of bigger falls, and a poor run early in retirement while you draw an income can damage long term security (sequencing risk), so more growth is not automatically better or guaranteed. The right balance depends on your plan and the risk you can take.

You do not have to go looking far for a real example of the annuity-era design. The default pension for John Lewis Partnership staff, the JLP Lifecycle, historically switched members out of global equities and into a diversified growth fund from fifteen years before their retirement date, then into a cash fund from seven years out, so that on the target date the pot sat 100% in cash. For anyone intending to buy an annuity or take the lot as a lump sum, that made sense. For anyone planning to work longer or stay invested through drawdown, landing entirely in cash meant handing the whole pot to the one asset that reliably loses to inflation over a long retirement.

What happened next is the more interesting part, and it is the whole story in miniature. The JLP scheme has since rebuilt its default investment offering. It now runs two pathways rather than one: a Cash Pathway for members who intend to take their savings as cash or buy an annuity, which still moves largely into cash-like assets, and a second Flexible Income Pathway for members using drawdown, which by the retirement date deliberately keeps a balanced mix of growth and lower-risk assets so the pot can keep working through retirement. A large, carefully run scheme looked at how people actually take income after 2015 and concluded that steering everyone toward cash was the wrong destination.

That is precisely the mismatch worth checking in your own pension.

Why can a cautious pension still carry risk? The 2022 lesson

A cautious pension can still lose money, because bonds and cash carry their own risks, and 2022 was the year that reminded everyone of it.

There is a comfortable myth that moving from shares into bonds means moving from "risky" to "safe." Bonds are less volatile than shares most of the time. But they are exposed to two things a lot of savers never think about: interest rates and inflation. When interest rates rise, the market value of existing bonds falls, and longer-dated bonds fall hardest. When inflation is high, the fixed income from a bond buys less in real terms.

In 2022, both happened at once. According to Investment Association sector data, the average UK gilt fund fell around 20% over the year, and index-linked gilt funds, the ones many people assume are the inflation-proof option, fell around 31%. Longer-dated gilts fell more still. So the savers who had been dutifully de-risked into bonds as they approached retirement watched their supposedly safe pots drop sharply, while inflation ate into what was left. Being cautious offered no protection here. It swapped one risk for another that nobody had explained.

None of this makes bonds bad, and a year like 2022 was rare. Bonds do an important job in a sensible portfolio, and in most years they behave much as you would expect. The useful point is a principle that holds in calm markets too, and it stands on its own without leaning on a single dramatic year. The word "safe" describes how an asset behaves in a particular situation, and that can change as circumstances change. Any portfolio can end up wrong for its goal, whether it leans too adventurous or too cautious. You can find a weak spot in almost any approach in this industry, so the real test is a simple one: does your pension still fit your plan?

What does a well-designed retirement pension look like?

A well-designed retirement pension is built around how you will actually use the money, not around an annuity purchase most people no longer make.

For a drawdown investor, that usually points toward a few features. A strategy designed to run through retirement rather than stop at it, because your money needs to keep working for decades after your retirement date. A sensible equity floor, meaning enough exposure to growth assets to fund a long retirement and keep pace with inflation, rather than a near-total retreat into bonds and cash. Many through-retirement approaches keep a meaningful share of the pot in equities at the point of retirement, often around half or more, and glide down gently from there, though the right level is entirely individual. And genuine diversification on the defensive side, so that the "safe" part of the portfolio is not quietly making one big bet on interest rates, which is the trap 2022 exposed.

This is also where the regulator has been pushing. In its 2024 review of retirement income advice (TR24/1), the FCA told firms to make sure their approach reflects how people actually take income in retirement, tests whether that income is sustainable, and uses proper cashflow planning rather than a one-size-fits-all setting. In plain terms: the plan should fit the person. Under Consumer Duty, that is the standard the whole industry is now held to, and it is worth holding your own pension to the same standard.

How does Finova Money approach the balance between growth and security in retirement?

This is the part where I will give you our view rather than just the background, because how you strike this balance matters more than almost any product choice.

We start with the plan, not the pot. Before we talk about funds or glidepaths, we want to know what income you need, when you need it, how long it has to last, and what else is coming in, such as the state pension or other savings. The investment strategy falls out of that answer, rather than the other way round.

From there, we think of your money as doing two jobs at once. The first job is security: holding enough in cash and stable assets to cover a meaningful stretch of your near-term income, so that a bad year in markets never forces you to sell your growth investments at the worst possible moment. That single idea does much of the heavy lifting against sequencing risk, the danger of poor returns early in retirement doing lasting damage to a pot you are drawing from.

The second job is growth. A retirement can run for thirty years, and over that horizon the quiet erosion of inflation is a bigger threat to most people than any single market fall. So we aim to keep a genuine growth engine working in the portfolio, sized to the plan, rather than retreating wholesale into cash and bonds the day you stop working.

The skill is in the balance between those two jobs, and it is personal. Someone with a generous defined benefit pension and modest spending can usually afford to take more long-term risk with the rest. Someone drawing heavily on a single pot, or who would lie awake through a sharp fall, needs more security and a gentler ride, even at the cost of some growth. There is no universal right answer, only the right answer for you, your plan, and the amount of volatility you can genuinely live with.

And it is not set once and left. Markets move, your spending changes, your plans shift. We review the balance as we go, rather than trusting an automatic glidepath that was aimed at a date and an assumption chosen years earlier. That, in a sentence, is the difference between a plan and a default.

Three questions to ask about your own pensions

You do not need to become an investment expert to check whether your pension still fits you. You need three answers.

First, is my pension currently in a lifestyle or target date strategy, and has the glidepath already started? If your provider is moving you toward bonds and cash on a schedule, you want to know that it is happening and when it began.

Second, what retirement date is my pension aiming at, and is it still the right one? Lifestyling steers toward a specific date. If that date is wrong, perhaps because you now plan to work longer or retire earlier, the whole glidepath is aiming at the wrong runway.

Third, does the plan assume I will buy an annuity or use drawdown? This is the question that unlocks the others. If your pension is quietly built for an annuity you do not intend to buy, that is the mismatch worth fixing, and fixing it is usually straightforward once you can see it.

If you would like to talk any of this through, you can send us a message or book an initial call with us and we will look at your own pension together.

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Frequently asked questions

Are lifestyle funds bad?

Lifestyle funds are not inherently bad. They were a sensible design for savers heading toward an annuity, and for someone still planning to buy one they can do a reasonable job. The problem is a mismatch. If you intend to use drawdown and stay invested for decades, a lifestyle fund that de-risks you heavily into bonds and cash by your retirement date may be solving a problem you no longer have while reducing the growth you will still need.

What is a pension glidepath?

A pension glidepath is the pre-set schedule that gradually changes your pension's investment mix as you approach a target retirement date, typically reducing shares and increasing bonds and cash. The name comes from the image of a plane descending toward a runway. The descent usually begins somewhere between five and fifteen years before the target date, and the exact speed and destination mix vary from one pension to another.

Should my pension still be de-risking if I'm using drawdown?

If you are using drawdown, aggressive de-risking to a low-growth mix by your retirement date is often the wrong fit, because your money needs to stay invested and keep growing for potentially twenty to thirty more years. Many drawdown investors are better served by a strategy that runs through retirement and keeps a sensible level of growth assets, rather than one that treats the retirement date as a finish line. What is right for you depends on your income needs, other assets, and attitude to risk, which is exactly the kind of thing worth checking rather than assuming.

How much equity should I hold in retirement?

There is no single correct figure, because the right level of equities in retirement depends on how much income you need, how long the money must last, your other sources of income, and how much short-term ups and downs would worry you. What is clear is that a near-total retreat from equities can leave a drawdown pot struggling to keep pace with inflation over a long retirement. Many through-retirement strategies hold a meaningful equity allocation at retirement, often around half or more, but that is a starting point for a conversation, not a recommendation for your situation.

What's the difference between a target date fund and a lifestyle fund?

Both gradually reduce risk as you approach retirement, and in everyday use the terms overlap heavily. The main practical difference is in the wrapper. A target date fund is a single fund labelled with a retirement year, and the manager adjusts the mix inside it over time. A lifestyle strategy is more often a framework applied across your pension that automatically switches your money between separate underlying funds as the date approaches. What matters more than the label is the same question for both: where does the glidepath land you, and does that landing point suit an annuity or drawdown?

Not sure what your pension is set up to do as you approach retirement?

Most people have never seen their own glidepath, never chose it, and have never checked whether it still fits the retirement they actually want. That is worth ten minutes of anyone's attention. If you would like a second pair of eyes on it, let's check your pension is still working toward the retirement you have in mind, not the one the default was designed for.

This article is for general information only and does not constitute financial advice or a personal recommendation. Information is correct based upon our understanding of regulatory practices as at the date of publication. There is no guarantee this information will be accurate in the future. Information is subject to change.

Past performance is not a guide to future performance. Tax and pension rules can change, and their effect depends on your individual circumstances. Please seek regulated advice before making decisions about your pension.

Sources:

• Pension freedoms introduced April 2015 (HM Treasury / GOV.UK).

• 2022 fund returns: Investment Association sector data via FE FundInfo (UK Gilts sector approximately -20%, UK Index-Linked Gilts sector approximately -31%).

• John Lewis Partnership default design: JLP Lifecycle fund information sheet (Legal & General) for the historical strategy, and the John Lewis Partnership Trust for Pensions Statement of Investment Principles (September 2024) and JLP pensions member site (2025) for the current two-pathway default.

Regulatory context:

• FCA Thematic Review of Retirement Income Advice, TR24/1, 20 March 2024, and Consumer Duty.

• The £100,000 comparison is a simplified illustration that applies assumed returns of 6.5% a year for growth assets and 2% a year for defensive assets to a gentle and a steep de-risking path, not a projection, and it ignores charges, inflation and tax.